EMI rejects Warner Music Group approach

By Caroline Muspratt

12:01AM GMT 02 Mar 2007

Music group EMI has rejected a 260p-a-share, £2.08bn indicative approach from Warner Music Group, which it claimed undervalued the company.

EMI, which recently issued two profits warnings in the space of a month, said it had received a non-binding proposal from Warner, "indicating that Warner might be prepared to make an offer", depending on regulatory clearance, of 260p-a-share in cash "subject to numerous assumptions and conditions."

EMI said it had considered the approach at a board meeting earlier today, and concluded that "it is not in the best interests of EMI shareholders to entertain a pre-conditional offer which would entail prolonged regulatory uncertainty and unacceptable operational risk at a critical time for the company."

It also said that the proposed price of 260p a share was "inadequate, having regard to the stand-alone value of EMI, the synergies available from a combination with WMG and the risks identified above."

It added that there was "no certainty that the approach by WMG will lead to an offer," and said it "remains focused on maximising the performance of the business."

Last month it emerged that Warner had approached EMI about a possible bid after gaining the support of Impala, the trade group for independent music labels which has previously challenged consolidation in the industry. Though no price was revealed, analysts expected any bid to be pitched around 260p a share. Warner offered 320p a share for EMI last year but the UK music group has struggled since then. Last year EMI also rebuffed a £2.5bn takeover approach from private equity firm Permira.

In February, EMI issued its second profits warning in four weeks, telling investors that revenues in its recorded music arm were likely to be down 15pc in the year to March.

EMI's announcement came shortly before the stock market closed. Its shares closed 10.5 higher at 246.25p, capitalising the group at £1.97bn.